Impact of behavioral finance on financial decision making
Student, Guru nanak dev university, Amritsar, India
Review Article
World Journal of Advanced Research and Reviews, 2024, 24(01), 1548–1554
Publication history:
Received on 04 September 2024; revised on 14 October 2024; accepted on 16 October 2024
Abstract:
This paper highlights the disproportionate effect of behavioral finance on investor’s investing decisions. While making any financial decisions, one easily gets influenced by psychological and emotional factors. Past individual experiences, tendency or opportunity for herd behavior, personal judgment, overconfidence in one's abilities, aversion to feelings of regret, reliance on advice from experts, and last but not least, something known as the disposition effect—by which investors tend to hold on to losing investments and professionally sell profitable ones too early. The impact of these factors on the investment decision-making process varies; on the one hand, they may enhance the quality of the decision-making process by aligning investments with risk tolerance and financial goals. However, on the other hand, behavioral factors can be a cause of inefficiency if investment decisions are based more on emotions than objective analysis.
In our recent research, we questioned 187 investors, using a questionnaire from whom we acquired crucial information regarding the impact of behavioral finance on financial decisions. The primary objective of the questioning was to determine the effect of behavioral finance on financial decision-making. The secondary objective was to suggest some methods for making one aware of the repercussions of impulsive or emotional decision-making and making prudent investments.
Keywords:
Investing; Securities; Behavior; Decisions
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Copyright © 2024 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution Liscense 4.0